GENERAL KNOWLEDGE

Detailed explanation-1: -If there is a decrease in supply of goods and services while demand remains the same, prices tend to rise to a higher equilibrium price and a lower quantity of goods and services. The same inverse relationship holds for the demand for goods and services.

Detailed explanation-2: -If there is a shortage, the high level of demand will enable sellers to charge more for the good in question, so prices will rise. The higher prices will then motivate sellers to supply more of that good. At the same time, the rising prices will make demand go down.

Detailed explanation-3: -An increase in supply, all other things unchanged, will cause the equilibrium price to fall; quantity demanded will increase. A decrease in supply will cause the equilibrium price to rise; quantity demanded will decrease.

Detailed explanation-4: -Therefore, shortage drives price up. If a surplus exist, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated. If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.

Detailed explanation-5: -In economics, there are three main reasons or causes of shortages-an increase in demand, a decrease in supply, or government intervention (price ceilings for example).